Dec. 14 (Bloomberg) -- Mexican policy makers were unanimous
in their decision to keep the key interest rate unchanged last
month, saying the inflation outlook has begun to improve, the
minutes of the meeting released today showed.

The central bank board, led by Governor Agustin Carstens,
left the overnight lending rate at 4.5 percent on Nov. 30 for
the 31st consecutive meeting. In a statement accompanying the
decision, policy makers dropped language they had used in their
previous meeting that they may tighten monetary policy “soon”
and called a recent slowdown in inflation “noteworthy.”

Mexico’s inflation rate fell more than economists expected
in November, dropping to 4.18 percent from 4.60 percent a month
earlier as the effects of a bird-flu outbreak on egg and poultry
prices eased. While the rate remains above the 2 percent to 4
percent central bank target range, policy makers say they see a
clear downward trend and warn that Mexico’s growth outlook has
been hurt by U.S. fiscal uncertainty.

“The minutes have a dovish slant,” Fernando Losada, an
economist at Deutsche Bank Securities Inc. in New York, said in
a telephone interview. “This confirms the view that Banco de
Mexico is not in a hurry to increase the benchmark interest
rate.”

Below 4 Percent

The minutes reiterated the central bank’s forecast that
annual inflation will fall below 4 percent by the end of the
year and that the board may consider raising rates if new
inflation shocks arise. Most board members said they saw a risk
to CPI in the possibility of higher-than-expected prices set by
the government. The government decides prices including gasoline
and other energy costs.

“Most of the board members considered the balance of risks
for inflation have diminished at the margins,” according to the
minutes. On the economy, “some members argued that the main
risks in that area are associated with the global economic
weakness, especially related to the U.S. economy.”

Mexico’s economic growth eased to 3.3 percent in the third
quarter from 4.4 percent in the previous three months as U.S.
business investment slowed on concern Congress will fail to
avoid $600 billion in automatic spending cuts and tax increases
in January.

“That’s why manufacturing has been decelerating in the
U.S. and Mexico,” Gabriel Casillas, chief economist and head of
research at Grupo Financiero Banorte SAB, said in a telephone
interview from Mexico City before the report. “We continue to
call for an indefinite pause” in the benchmark rate, he said.

Fiscal Restraint

The Finance Ministry forecasts Latin America’s second-biggest economy will grow 3.9 percent this year and 3.5 percent
in 2013, while warning a U.S. slowdown poses the biggest risk.

On Dec. 7, President Enrique Pena Nieto’s finance minister,
Luis Videgaray, proposed a zero-deficit budget next year by
raising revenue to offset a 2.3 percent increase in spending.
Congress has a Dec. 31 deadline to decide on the 3.58 trillion
peso ($280 billion) spending package. Both houses in congress
passed the revenue portion of the budget this week.

A balanced budget, excluding spending on Petroleos
Mexicanos, would be the country’s first since 2009, Miguel
Messmacher, one of Videgaray’s deputies, said in a Dec. 7
interview.

Forecast Adjustments

Economists have begun lowering their inflation estimates,
with Citigroup Inc.’s Banamex unit saying Dec. 10 that prices
will rise 3.93 percent this year, down from their previous
forecast of 4.10 percent. A bi-weekly Banamex survey published
Dec. 4 shows analysts expect the rate to reach 4.07 percent by
the end of this month, down from 4.10 percent in the previous
poll.

There’s been a “shift in trend” in inflation since
September, central bank Deputy Governor Manuel Ramos Francia
wrote in a report published on the bank’s website Dec. 10.

While softening its language, the central bank still
referred to monetary policy tightening when it held rates steady
on Nov. 30.

“If new shocks to inflation emerge, even if they are
presumed to be temporary” the board may find it “appropriate”
to tighten monetary policy, the bank said.

Yields on Mexican inflation-linked bonds due in 2014 fell
three basis points to 1.14 percent at 10:17 a.m. in Mexico City.
The peso rose 0.2 percent 12.7717 per U.S. dollar. The currency
has strengthened 9.1 percent this year, the best performance
among 16 major currencies tracked by Bloomberg.